The switched-on approach
By Stuart Clark Managing Director, Russell & Russell Chartered Accountants
Is your company ready to go electric? If you’re thinking about making the switch to EVs for your employees, here are five things to consider
Benefit in kind
In the tax world, benefit in kind (BiK) is a benefit, such as a company car, with a monetary value. As such, it is subject to tax.
The BiK rules are notoriously complex. In respect of company cars, the BiK is based on a calculation which brings together the car’s list price (not its value or the price paid for it), its C02 emissions and the user’s tax circumstances.
It’s best not to try working this out on your own: your professional adviser is best placed to guide you to an optimal outcome.
Drivers can be certain, however, that the BiK tax charge for a traditional, fossil fuel-based vehicle significantly outstrips the charge for an electric car or van. Indeed, for the 2020/21 tax year, the fully electric car tax rate was set at zero.
Even in coming years, the rates will be remarkably light – 1% in 2021/22 and 2% the following year – but it’s reasonable to assume that as more EVs join the company car fleet, rates will rise again.
The takeaway here is to get professional advice. Tax on company cars is a tricky subject, but one that experienced accountants deal with every day.
It’s been reported that as many as seven out of 10 drivers are aware of the Government’s Cycle to Work scheme which allows staff members to purchase a new bicycle from their salary before income tax and National Insurance have been deducted.
However, less than 10% are aware of a similar programme for cars that heavily favours EVs. Now known as Optimal Remuneration Arrangements, the salary sacrifice for EVs has been around since 2016, ensuring the ultra-low emission vehicles (ULEVs) are as affordable as possible.
The tax benefits have now mostly been removed for petrol and diesel-powered cars but remain in place for ULEVs.
“Tax on company cars is a tricky subject, but one that experienced accountants deal with every day”
Enhanced Capital Allowances
Provided the car is brand new and purchased by the company, it will qualify for Enhanced Capital Allowances. This is a first-year allowance that lets your company deduct the full cost from profits before tax.
If you are not purchasing the car and are registered for VAT, then you can reclaim 50% of the VAT on lease payments.
You can claim 100% if the vehicle is for business use only.
If you install a charging point at work, this currently qualifies for the first-year allowance There is also no BiK for installing one at an employee’s home – although the installation is often covered by an energy efficient grant.
Chancellor Rishi Sunak confirmed plans for investment to ensure that EV drivers will never be more than 30 miles from the nearest fast charging point. He has committed the government to a new £500 million funding pot to be spent during the next five years to expand the UK’s rapid charging network.
The fund is primarily designed to cover the cost of businesses installing charging points on their premises. The Chancellor also announced a £403 million three-year extension to the plug-in car grant but cut the subsidy payment to £2,500 per car, as well as scrapping the pay-out for cars worth more than £50,000.
The Scottish Government offers interest-free loans to help with the purchase of new EVs. These cover up to £28,000 of the cost of purchasing a pure electric or plug-in hybrid. Applications for the loan should be made through the Energy Saving Trust. This loan is in addition to the UK Government’s Plug-In Vehicle Grant mentioned above, which now provides a maximum £2,500 discount at the point of purchase.
Based in Glasgow, Russell & Russell serves customers in an array of industries, including engineering and construction, with a focus on owner-managed businesses with annual revenues of up to £30m. For further information, please call 0141 332 6331 or visit www.growyourbusiness.co.uk